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Optimal Auction Design with Discrete Bidding


  • Harrison Cheng

    () (University of Southern California, visiting Institute of Economic Research, Kyoto University)


We develop the theory of optimal auction design in a discrete bidding model. Examples show that many of the equivalence results or other well-known results may fail in an auction with discrete bidding. We show that the optimal auciton problem, however, has a similar solution. We formulate a payoff formula which is a discrete version of the one for the continuous bidding model. We show that an optimal auction must satisfy the payoff formula, and the payoff formula is used to reduce the problem into the design of winning rules. We then use a simple algorithm and the duality theory of linear programming to build a general solution of the problem.

Suggested Citation

  • Harrison Cheng, 2004. "Optimal Auction Design with Discrete Bidding," KIER Working Papers 592, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:592

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    References listed on IDEAS

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    Cited by:

    1. Ricardo Gonçalves, 2008. "A communication equilibrium in English auctions with discrete bidding," Working Papers de Economia (Economics Working Papers) 042008, Católica Porto Business School, Universidade Católica Portuguesa.
    2. Gonçalves, Ricardo & Ray, Indrajit, 2017. "Partition Equilibria in a Japanese-English Auction with Discrete Bid Levels for the Wallet Game," CRETA Online Discussion Paper Series 34, Centre for Research in Economic Theory and its Applications CRETA.
    3. repec:eee:ecolet:v:159:y:2017:i:c:p:177-179 is not listed on IDEAS
    4. William S. Lovejoy, 2006. "Optimal Mechanisms with Finite Agent Types," Management Science, INFORMS, vol. 52(5), pages 788-803, May.
    5. Ray, Indrajit & Gonçalves, Ricardo, 2016. "Equilibria in a Japanese-English Auction with Discrete Bid Levels for the Wallet Game," Cardiff Economics Working Papers E2016/13, Cardiff University, Cardiff Business School, Economics Section.

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